ADR Lecture Notes PDF

ALTERNATIVE DISPUTE RESOLUTION | Atty.
VINCENT CESISTA | Modular Lecture Notes| EH 307
CONCEPT OF ARBITRATION industry, a Construction Industry Arbitration

Commission (CIAC) was created by EO No.
R.A. 9825, SECTION 3 1008 enacted on Feb. 4, 1985.
(a) "Alternative Dispute Resolution In practiced nowadays, absent an agreement of

System" means any process or procedure the parties to resolve their disputed via a
used to resolve a dispute or controversy, particular mode, it is the regular courts that
other than by adjudication of a presiding remain the for a to resolve such matters.
judge of a court or an officer of a However, the parties may opt for recourse to 3rd
government agenc0y, as defined in this parties, exercising their basic freedom to
Act, in which a neutral third party “establish such stipulations, clauses, terms and
participates to assist in the resolution of conditions as they may deem convenient,
issues, which includes arbitration, provided they are not contrary tolaw, morals,
mediation, conciliation, early neutral good customs, public order or public policy.”
evaluation, mini-trial, or any combination
thereof; In such case, resort to the arbitration process
may be spelled out by them in a contract in
(d) "Arbitration" means a voluntary dispute anticipation of disputes that may arise between
resolution process in which one or more them. Or this may be stipulate in a submission
arbitrators, appointed in accordance with the agreement when they are actually confronted by
agreement of the parties, or rules promulgated a dispute. Whatever be the case, such recourse
pursuant to this Act, resolve a dispute by to an extrajudicial means of settlement is not
rendering an award; intended to completely deprive the courts of
jurisdiction.
EARLY POINTS-OF-VIEW
But certainly, the stipulation to refer all future
HISTORY OF ARBITRATION disputed to an arbitrator or to submit an ongoing
(as cited on the case) dispute to one is valid. Being part of a contract
between the parties, it is binding and
Such means of referring a dispute to a 3rd party enforceable in court in case one of them
has also long been an accepted alternative to neglects, fails or refuses to arbitrate. In the event
litigation at common law. Sparse through the law that they declare their intention to refer their
and jurisprudence may be on the subject of differences to arbitration first before taking court
arbitration in the Philippines, it was nonetheless action, this constitutes a condition precedent –
recognized in the Spanish Civil Code; such that where a suit has been instituted
specifically, the provisions on compromises prematurely, the court shall suspend the same
made applicable to arbitrations under Art. 1820 and the parties shall be directed forthwith to
and 1821. Although, said provisions were proceed to arbitration.
repealed by implication with the repeal of the
Spanish law of Civil Procedure, these and A court action may likewise be proper where the
additional ones were reinstated in the present arbitrator has not been selected by the parties.
Civil Code.
Under the present law, may the parties who
That there was a growing need for a law agree to submit their disputed to arbitration
regulating arbitration in general was further provide that the arbitrators award shall be
acknowledged when RA 876 (1953) otherwise final, unappealable and executory?
known as the Arbitration Law, was passed.
Said Act was obviously adopted to supplement – Art. 2044 of the Civil Code recognizes the
not to supplant – the New Civil Code on validity of such stipulation:
arbitration. It expressly declared that “the
provisions of chapters 1 and 2, Title XIV, BOOK “Any stipulation that the arbitrators’ award or
IV of the CC shall remain in force.” decision shall be final is valid, without prejudice
to Art. 2038, 2039 and 2040. “
In recognition of the pressing need for an arbitral
machinery for the early and expeditious Similarly, the CIAL provides that the arbitral
settlement of disputed in the construction award “shall be final and inappeasable except
FAMindaña & ABOrbiso’s Notes 2021 1

ALTERNATIVE DISPUTE RESOLUTION | Atty. VINCENT CESISTA | Modular Lecture Notes| EH 307
on questions of law which shall be appealable to Works must be obtained before suit can be
the SC.” brought on a contract; that the findings of
these officials are conclusive; and that the
complaint must contain an averment to this
ALLEN V. THE PROVINCE OF TAYABAS effect. On the other hand, Allen contends that
G.R. NO. L-12283 neither the law nor the contract requires the
submission of arbitration of disputed between
FACTS: the Government and the contractor.
The province of Tayabas and Allen entered ISSUE: WON the certification of the District
into a contract whereby the contractor agreed Engineer and the Director of Public Works
to construct 5 reinforced concrete bridges. which must be obtained first before a suit can
one provision was that the bridges were to be be brought on a contract constitutes an
constructed “in accordance with the said arbitration agreement.
advertisements, instructions to bidders,
general conditions, plans, specifications, HELD: The certification of the District
proposal, and this agreement.” Engineer and the Director of Public Works is
not an arbitration agreement but a condition
Four of the bridges were accepted by the precedent before a contractor can recover
government and paid for. The dispute from a contract, nevertheless, Allen is entitled
between the parties arose as to the 5th bridge to recover even without such certificate on the
where the Province of Tayabas paid the ground of substantial performance.
contractor on account of the price thereof, but
refused to pay the balanced because plaintiff Act No, 1401, as amended by Act No. 1752
had deviated from the specifications and was in force when this action was instituted.
because the work was defective. Allen speaks of the provisions of the law and
the portions of the contract in questions as
The common averments of the 6 causes of possibly constituting an arbitration agreement.
action were: (1) residence; (2) the contract; We deem these provisions to be more
(3) the faithful compliance “with all the terms correctly labelled a condition precedent to the
and conditions of the said contract” on the contractor’s right to obtain payment; the
part of the contractor, and completion and condition is for the satisfaction of the
delivery of the bridges in question; (4) refusal Government.
of defendant to pay plaintiff the balance.
Both the law and the contract provide in
Defendant demurred to the complaint on the mandatory language for a certificate of
ground that it does not constitute a cause of acceptance by the Dir. Of Public Works or his
action because:” (1) the approval of the representative before nay payment shall be
Governor-General to the contract had not made on any public work for the Government.
been given as contemplated by Sec. 2 of the
Provincial Government Act (No. 83); an d (2) The rule is well-settled that in the absence of
the certificate for payment had not been fraud or such of gross mistake as would
accomplished by the Director of Public Works necessarily imply bad faith; contractors with
or the district engineer as provided by Sec. 6 public corporations are concluded by the
of Act No. 1401, as amended. decisions of Engineers or like officers where
the contract contains such stipulation. The
The trial court gave ruled in favor of Allen public corporation can rely on the provision in
holding that the law which makes the approval a contact that performance by the other party
of the Governor-General a prerequisite only to shall be approved by or satisfactory to it, or a
the purchase or conveyance of real property particular officer, board or committee.
by a province.
However, it has been held that the provisions
Since the Province of Tayabas’ Motion for of a contract to perform work for the city
New Trial was denied, it elevated the case to requiring the contractor to obtain the
the SC contending that the certificate by the certificate of the city engineer that the work
district engineer and the Director of Public has been done in accordance with the

contract and the approval of such work by a

certain boards or committees, before he is Accordingly, the Province of Tayabas having
entitled to payment therefor, does not deprive accepted bridge should, of course, pay the
him of the right to recover for the work, if it balance due.
has been done in substantial conformity to the
contract, because the city’s officers arbitrarily VEGA V. THE SAN CARLOS MILLING CO.,
or unreasonable refuse the certificate and LTD
approval called for. G.R. NO. L-21549
Moreover, it has been held that, if the

plaintiff's right of action depends upon a FACTS:
condition precedent he must allege and prove
the fulfilment of the condition or a legal The defendant company appealed from the
excuse for its non-fulfilment. And if he omits judgment of the CFI of Occidental Negros
such allegation, his declaration, complaint, or where the plaintiff was held to have a better
petition, will be bad on demurrer." right to the pssession of the 32,959 kilos of
Undoubtedly, the complaint should have centrifugal sugar manufactured in the
alleged either the performance of the defendant’s central and the latter is sentenced
condition precedent, approval by the Director to deliver them to the plaintiff, and alleges that
of Public Works or the District Engineer, or a the lower court erred in having held itself with
good and sufficient excuse for not obtaining it. jurisdiction to take cognizance of and render
However, the complaint contains the general judgment in the cause; in holding that the
averment that the Allen fully and faithfully defendant was bound to supply cars
complied with all the terms and conditions of gratuitously to the plaintiff for the cane; in not
the said contract, while some months ordering the plaintiff to pay to the defendant
subsequent to the filing of the complaint but the sum of P2,866 for the cars used by him,
previous to the trial, the Province of Tayabas with illegal interest on said sum from the filing
accepted the bridge. A failure to allege a of the counterclaim, and the costs, and that
condition precedent or a legal reason for said judgment is contrary to the weight of the
dispensing with it may be cured by the issues evidence and the law.
tendered by the answer and the proof.
The first assignment of error is based on
Appellee seeks of the provisions of the law clause 23 of the Mill's covenants and clause
and the portions of the contract in questions 14 of the Planter's Covenant wherein they
as possibly constituting an arbitration agreed that they will submit any and all
agreement. We deem these provisions to eb differences that may arise between the parties
more correctly labeled a condition precedent of the decision of arbitrators, two of whom
to the contractor’s right to obtain payment; the shall be chosen by the said parties of the first
condition is for the satisfaction of the part and two by the said party of the second
Government. Nevertheless, considered as a part, who in case of inability to agree, shall
species of arbitration, it was convenient and select a fifth arbitrator, and will respect and
proper method, duly agreed upon between abide by the decision of said arbitrators, or
the parties, to determine questions that would any three of them, as the case may be.
necessarily arise in the performance of the
contract, about which men might honestly It is an admitted fact that the differences
differ. The New York theory of refusal to which arose between the parties, and which
uphold such agreements, because of the are the subject of the present litigation have
opinion that they violate the spirit of the laws not been submitted to the arbitration provided
creating the courts, is hardly agreed to by mor for in Clauses 23 and 14 abovementioned.
progressive jurisdictions. Unless the
agreement is such absolutely to close the Defendant contends that as such stipulations
doors of the courts against the parties, which on arbitration are valid, they constitute a
agreement would be void. Courts will look condition precedent, to which the plaintiff
with favor upon such amicable arrangements should have resorted before applying to the
and will only with great reluctance interfere to courts, as he prematurely did.
anticipate or nullify the action of the arbitrator.

Industries and private respondent

ISSUE: WON arbitration is a condition RoblecorPhilippines forged a construction
precedent to a suit upon the contract. agreement whereby respondentcontractor
committed to construct and finish on
December 31, 1989 petitioner corporation’s
HELD: NO. The defendant is right in industrial/factory complex in Tanawa, Tanza,
contending that such covenants on arbitration Cavite. In the event of disputes arising from
are valid, but they are not for the reason a bar the performance of subject contract, it was
to judicial action, in view of the way they are stipulated therein that the issue(s) shall be
expressed: submitted for resolution before a single
arbitrator chosen by both parties.
An agreement to submit to arbitration, not
consummated by an award, is no bar to suit at Apart from the aforesaid construction
law or in equity concerning the subject matter agreement, Chung Fu and Roblecor entered
submitted. And the rule applies both in into 2 another ancillary contracts. However,
respect of agreements to submit existing respondent failed to complete the work
differences and agreements to submit despite the extension of time allowed it by
differences which may arise in the future. petitioner. Subsequently, the latter had to take
over the construction when it had become
And in view of the terms in which the said evident that Roblecor was not in a position to
covenants on arbitration are expressed, it fulfill its obligation.
cannot be held that in agreeing on this point,
the parties proposed to establish the Claiming unsatisfied and unpaid progress
arbitration as a condition precedent to judicial billings, Roblecor filed a petition for
action, because these clauses quoted do not Compulsory Arbitration with prayer for TRO
create such a condition either expressly or by before RTC, pursuant to the arbitration clause
necessary inference. in the construction agreement. Chung Fu
moved to dismiss the petition and further
Clauses in insurance and other contracts prayed for the quashing of the restraining
providing for arbitration in case of order.
disagreement are very similar, and the
question whether submission to arbitration is Subsequent negotiations between the parties
a condition precedent to a suit upon the eventually led to the formulation of an
contract depends upon the language arbitration agreement where the RTC
employed in each particular stipulation. approved the same.
Where by the same agreement which creates
the liability, the ascertainment of certain facts Arbitrator Asuncion ordered petitioners to
by arbitrators is expressly made a condition immediately pay respondent contractor. He
precedent to a right of action thereon, suit further declared the award as final and
cannot be brought until the award is made. unappealable, pursuant to the Arbitration
But the courts generally will not construe an Agreement precluding judicial review of the
arbitration clause as ousting them of their award.
jurisdiction unless such construction is
inevitable, and consequently when the Chung Fu elevated the case via a petition for
arbitration clause is not made a condition Certiorari to respondent CA. the respondent
precedent by express words or necessary appellate court concurred with the findings
implication, it will be construed as merely and conclusions of respondent trial court
collateral to the liability clause, and so no bar resolving that Chung Fu and its officers, as
to an action in the courts without an award. signatories to the Arbitration Agreement are
bound to observe the stipulations thereof
CHUNG FU INDUSTRIES INC. V. CA providing for the finality of the award and
G.R. NO. 96283 precluding any appeal therefrom.
FACTS: A motion for reconsideration of said resolution

was filed by petitioner, but it was similarly
On May 17, 1989, petitioner Chung Fu denied by respondent CA thru its questioned

resolution. vacating the award under Sec. 24 (d) of the

Arbitration Law. But the respondent trial
ISSUE:WON subject arbitration award is court’s refusal to look into the merits of the
indeed beyond the ambit of the court’s power case, despite prima facie showing of the
of judicial review. existence of grounds warranting judicial
review, effectively deprived petitioners of their
HELD: We rule in the negative, it stated opportunity to prove or substantiate their
explicitly under Art. 2044 of the CC that the allegations. In so doing, the trial court itself
finality of the arbitrators’ award is not absolute committed grave abuse of discretion.
and without exceptions. Where the conditions
described in Art. 2038, 2039 and 2040
applicable to both compromises and ARBITRATION UNDER THE CIVIL CODE
arbitrations are obtaining, the arbitrators’
award may be annulled or rescinded. ART. 2042. The same persons who may enter
Additionally, under Sec. 24 and 25 of the into a compromise may submit their
Arbitration Law, there are grounds for controversies to one or more arbitrators for
vacating, modifying or rescinding an decision.
arbitrator’s award. Thus, if and when the
factual circumstances referred to in the ART. 2043. The provisions of the preceding
above-cited provisions are present, judicial Chapter upon compromises shall also be
review of the award is properly warranted. applicable to arbitrations.
How may the power of judicial review be ART. 2044. Any stipulation that the arbitrators’
invoked? award or decision shall be final, is valid, without
prejudice to Articles 2038, 2039, and 2040.
The proper remedy is certiorari under Rule
65 of the Revised Rules of Court. This ART. 2045. Any clause giving one of the parties
action will lie only where a grave abuse of power to choose more arbitrators than the other
discretion or an act without or in excess of is void and of no effect
jurisdiction on the part of the voluntary
arbitrator is clearly shown. In special civil ART. 2046. The appointment of arbitrators and
action of certiorari, the Court will not engage the procedure for arbitration shall be governed
in a review of the facts found nor even of the by the provisions of such rules of court as the
law as interpreted or applied by the arbitrator Supreme Court shall promulgate
unless the supposed errors of fat or of law are
so patent and gross and prejudicial as to OTHER PROVISIONS
amount to a grave abuse of discretion or an
excess de pouvoir on the part of the arbitrator. ART. 2038. A compromise in which there is
mistake, fraud, violence, intimidation, undue
It should also be stressed that Voluntary influence, or falsity of documents, is subject to
Arbitrators, by the nature of their functions, the provisions of Article 1330 of this Code.
act in a quasi-judicial capacity. It stands to
reason, therefore that their decisions should However, one of the parties cannot set up a
not eb beyond the scope of the power of mistake of fact as against the other if the
judicial review of this Court. latter, by virtue of the compromise, has
withdrawn from a litigation already
ITCAB, we find that petitioners have amply commenced.
made out a case where the voluntary
arbitrator failed to apply the terms and ART. 2039. When the parties compromise
provisions of the Construction Agreement generally on all differences which they might
which forms part of the law applicable as have with each other, the discovery of
between the parties, thus committing grave documents referring to one or more but not all
abused of discretion. Furthermore in granting of the questions settled shall not itself be a
unjustified extra-compensation to respondent cause for annulment or rescission of the
for several items, he exceeded his powers – compromise, unless said documents have
all of which would have constituted ground for been concealed by one of the parties.

UNIWIDE SALES REALTY AND

But the compromise may be annulled or RESOURCES CORPORATION vs. TITAN-
rescinded if it refers only to one thing to which IKEDA CONSTRUCTION AND
one of the parties has no right, as shown by DEVELOPMENT CORPORATION
the newly discovered documents. G.R. No. 126619. December 20, 2006.
ART. 2040. If after a litigation has been

decided by final judgement, a compromise FACTS
should be agreed upon, either or both parties
being unaware of the existence of the final The case originated from an action for a sum
judgement, the compromise may be of money filed by TITAN-IKEDA
rescinded. CONSTRUCTION AND DEVELOPMENT
CORPORATION (Titan) against UNIWIDE
Ignorance of a judgement which may be SALES REALTY AND RESOURCES
revoked or set aside is not a valid ground for CORPORATION (Uniwide), arising from
attacking a compromise. Uniwide's non-payment of certain claims billed
by Titan after completion of three projects
ART. 2041. If one of the parties fails or covered by agreements they entered into with
refuses to abide by the compromise, the other each other.
party ay either enforce the compromise or
regard it as rescinded and insist upon his Titan's complaint was thus re-filed with the
original demand. CIAC.Before the CIAC, Uniwide filed an
answer which was later amended and re-
KINDS OF ARBITRATION amended, denying the material allegations of
the complaint, with counterclaims for refund of
VOLUNTARY ARBITRATION – involves the overpayments, actual and exemplary
reference of a dispute to an impartial body, the damages, and attorney's fees. The
members of which are chosen by the parties agreements between Titan and Uniwide are
themselves, which parties freely consent in briefly described below.
advance to abide by the arbitral award issued
after proceedings where both parties had the The FIRST AGREEMENT (Project 1) was a
opportunity to be heard. written "Construction Contract" entered into by
Titan and Uniwide sometime in May 1991
Q. What is the objective? whereby Titan undertook to construct
Uniwide's Warehouse Club and
A. The basic objective is to provide a speedy Administration Building.
and inexpensive method of settling disputes by
allowing the parties to avoid the formalities, Sometime in July 1992, Titan and Uniwide
delay, expense and aggravation which entered into the SECOND AGREEMENT
commonly accompany ordinary litigation, (Project 2) whereby the former agreed to
especially litigation which goes through the construct an additional floor and to renovate
entire hierarchy of courts the latter's warehouse located at the EDSA
Central Market Area in Mandaluyong City.
COMPULSORY ARBITRATION – has been There was no written contract executed
defined both as "the process of settlement of between the parties for this project.
labor disputes by a government agency which
has the authority to investigate and to make an The parties executed the THIRD
award which is binding on all the parties, and as AGREEMENT (Project 3) in May 1992. In a
a mode of arbitration where the parties are written "Construction Contract," Titan
compelled to accept the resolution of their undertook to construct the Uniwide Sales
dispute through arbitration by a third party." Department Store Building in Kalookan City
for the price of P118,000,000.00 payable in
progress billings to be certified to by Uniwide's
representative
An ARBITRAL TRIBUNAL consisting of a
chairman and two members was created in

accordance with the CIAC Rules of Procedure project. This accordingly exempts
Governing Construction Arbitration. It Claimant Titan-Ikeda Construction
conducted a preliminary conference with the and Development Corporation from
parties and thereafter issued a Terms of this obligation.
Reference (TOR) which was signed by the
parties. ISSUE
ARBITRAL TRIBUNAL promulgated a

(1) Whether Uniwide is entitled to a return of
Decision:
the amount it allegedly paid by mistake to
Titan for additional works done on Project 1;
(2) Whether Uniwide is liable for the payment
On Project 1 – Libis: of the Value-Added Tax (VAT) on Project 1;
(3) Whether Uniwide is entitled to liquidated
[Uniwide] is absolved of any liability damages for Projects 1 and 3; and (4)
for the claims made by [Titan] on this Whether Uniwide is liable for deficiencies in
Project. Project 2.
Project 2 – Edsa Central: RULING
[Uniwide] is absolved of any liability As a rule, findings of fact of administrative

for VAT payment on this project, the agencies and quasi-judicial bodies, which
same being for the account of the have acquired expertise because their
[Titan]. On the other hand, [Titan] is jurisdiction is confined to specific matters, are
absolved of any liability on the generally accorded not only respect, but also
counterclaim for defective finality, especially when affirmed by the Court
construction of this project. of Appeals. In particular, factual findings of
construction arbitrators are final and
conclusive and not reviewable by this
[Uniwide] is held liable for the unpaid
Court on appeal. This rule, however admits
balance in the amount
of certain EXCEPTIONS.
of P6,301,075.77 which is ordered to
be paid to the [Titan] with 12%
interest per annum commencing from In David v. Construction Industry and
Arbitration Commission, we ruled that, as
19 December 1992 until the date of
exceptions, FACTUAL FINDINGS OF
payment.
CONSTRUCTION ARBITRATORS MAY BE
REVIEWED BY THIS COURT WHEN THE
On Project 3 – Kalookan: PETITIONER PROVES AFFIRMATIVELY
THAT: (1) the award was procured by
[Uniwide] is held liable for the unpaid corruption, fraud or other undue means; (2)
balance in the amount there was evident partiality or corruption of
of P5,158,364.63 which is ordered to the arbitrators or of any of them; (3) the
be paid to the [Titan] with 12% arbitrators were guilty of misconduct in
interest per annum commencing from refusing to hear evidence pertinent and
08 September 1993 until the date of material to the controversy; (4) one or more of
payment. the arbitrators were disqualified to act as such
under Section nine of Republic Act No. 876
[Uniwide] is held liable to pay in full and willfully refrained from disclosing such
the VAT on this project, in such disqualifications or of any other misbehavior
amount as may be computed by the by which the rights of any party have been
Bureau of Internal Revenue to be materially prejudiced; or (5) the arbitrators
paid directly thereto. The BIR is exceeded their powers, or so imperfectly
hereby notified that [Uniwide] Sales executed them, that a mutual, final and
Realty and Resources Corporation definite award upon the subject matter
has assumed responsibility and is submitted to them was not made.
held liable for VAT payment on this

Other recognized exceptions are as follows: Court, citing the provisions

(1) when there is a very clear showing of on solutioindebiti under Arts. 2154 and 2156
grave abuse of discretionresulting in lack or of the Civil Code. However, it is not enough to
loss of jurisdiction as when a party was prove that the payments made by Uniwide to
deprived of a fair opportunity to present its Titan were "not due" because there was no
position before the Arbitral Tribunal or when prior authorization or agreement with respect
an award is obtained through fraud or the to additional works. There is a further
corruption of arbitrators, (2) when the findings requirement that the payment by the debtor
of the Court of Appeals are contrary to those was made either through mistake or under a
of the CIAC,and (3) when a party is deprived cloud of doubt. In short, for the provisions
of administrative due process on solutioindebiti to apply, there has to be
evidence establishing the frame of mind of the
payor at the time the payment was made.
Payment by Mistake for Project 1
Yet even conceding that the additional works
on Project 1 were not authorized or committed
Uniwide cites Article (Art. ) 1724 of the New into writing, the undisputed fact remains that
Civil Code as basis for its claim that it is not Uniwide paid for these additional works. Thus,
liable to pay for "additional works" it did not to claim a refund of payments made under the
authorize or agree upon in writing. The principle of solutioindebiti, Uniwide must be
provision states: able to establish that these payments were
made through mistake.
Art. 1724. The contractor who
Liability for the Value-Added Tax (VAT)
undertakes to build a structure or any
other work for a stipulated price, in
We agree with the conclusions of both the
conformity with plans and
CIAC and the Court of Appeals that the
specifications agreed upon with the
landowner, can neither withdraw from amount of P2,400,000.00 was paid by
the contract nor demand an increase Uniwide as VAT for Project 1. This conclusion
in the price on account of the higher was drawn from an Order of Payment37 dated
7 October 1992 wherein Titan billed Uniwide
cost of labor or materials, save when
the amount of P2,400,000.00 as "Value
there has been a change in the plans
Added Tax based on P60,000,000.00
and specifications, provided:
Contract," computed on the basis of 4%
of P60,000,000.00. Said document which was
(1) Such change has been authorized approved by the President of Uniwide
by the proprietor in writing; and expressly indicated that the project involved
was the "UNIWIDE SALES WAREHOUSE
(2) The additional price to be paid to CLUB & ADMIN BLDG." located at "90 E.
the contractor has been determined in RODRIGUEZ JR. AVE., LIBIS, Q.C." The
writing by both parties. reduced base for the computation of the tax,
according to the Court of Appeals, was an
Accordingly, Uniwide, as the owner who did indication that the parties agreed to pass the
pay the contractor for such additional works VAT for Project 1 to Uniwide but based on a
even if they had not been authorized in lower contract price.
writing, has to establish its own right to
reimbursement NOT under Art. 1724, but Liquidated Damages
under a different provision of law.
Uniwide's burden of establishing its legal right According to Uniwide, the ruling of the Court
to reimbursement becomes even more crucial of Appeals on the issue of liquidated damages
in the light of the general presumption goes against the established judicial policy
contained in Section 3(f), Rule 131 of the that a court should always strive to settle in
Rules of Court that "money paid by one to one proceeding the entire controversy leaving
another was due to the latter." no root or branch to bear the seeds of future
litigations.
Uniwide undertakes such a task before this

relating to Project 2 in the amount

On this point, the CIAC held: of P6,301,075.77. It is nonetheless alleged by
Uniwide that Titan failed to submit any "as-
built" plans for Project 2, such plans allegedly
The Rule of Procedure Governing
Construction Arbitration promulgated by the serving as a condition precedent for payment.
CIAC contains no provision on the application Uniwide further claims that Titan had
of the Rules of Court to arbitration substantially overcharged Uniwide for Project
proceedings, even in a suppletory capacity. 2, there being uncontradicted expert
testimony that the total cost of Project 2 did
Hypothetically admitting that there is such a
not exceed P7,812,123.60. Furthermore,
provision, suppletory application is made only
if it would not contravene a specific provision Uniwide alleged that the works performed
in the arbitration rules and the spirit thereof. were structurally defective, as evidenced by
The Tribunal holds that such importation of the structural damage on four columns as
the Rules of Court provision on observed on ocular inspection by the CIAC
amendment to conform to evidence would and confirmed by Titan's project manager.
contravene the spirit, if not the letter of the
CIAC rules. On the necessity of submitting "as-built"
plans, this Court rules that the submission of
such plans is not a pre-requisite for Titan to
ARBITRATION has been defined as "an be paid by Uniwide. The argument that said
arrangement for taking and abiding by the plans are required by Section 308 of
judgment of selected persons in some Presidential Decree No. 1098 (National
disputed matter, instead of carrying it to Building Code) and by Section 2.11 of its
established tribunals of justice, and is Implementing Rules before payment can be
intended to avoid the formalities, the delay, made is untenable.
the expense and vexation of ordinary
litigation."VOLUNTARY ARBITRATION, on Uniwide had the burden of proving that
the other hand, involves thereference of a there was defective construction in Project
dispute to an impartial body, the members of 2 but it failed to discharge this burden.
which are chosen by the parties themselves, Even the credibility of its own witness was
which parties freely consent in advance to severely impaired. Further, it was found that
abide by the arbitral award issued after the concrete slab placed by Titan was not
proceedings where both parties had the attached to the old columns where cracks
opportunity to be heard. The basic objective is were discovered. The CIAC held that the
to provide a speedy and inexpensive method post-tensioning of the new concrete slab
of settling disputes by allowing the parties to could not have caused any of the defects
avoid the formalities, delay, expense and manifested by the old columns. We are bound
aggravation which commonly accompany by this finding of fact by the CIAC.
ordinary litigation, especially litigation which
goes through the entire hierarchy of courts. Petition is DENIED and the Decision of the
Court of Appeals is hereby AFFIRMED.
As an arbitration body, the CIAC can only

resolve issues brought before it by the parties BENGUET CORPORATION vs.
through the TOR which functions similarly as DEPARTMENT OF ENVIRONMENT AND
a pre-trial brief. Thus, if Uniwide's claim for NATURAL RESOURCES-MINES
liquidated damages was not raised as an ADJUDICATION BOARD and J.G. REALTY
issue in the TOR or in any modified or AND MINING CORPORATION
amended version of it, the CIAC CANNOT G.R. No. 163101. February 13, 2008
make a ruling on it.
Project 2: "as-built" plans, overpricing, FACTS

defective construction
1987, BENGUET AND J.G. REALTY entered
The CIAC, as affirmed by the Court of into a Royalty Agreement with Option to
Appeals, held Uniwide liable for deficiency Purchase, wherein J.G. REALTY was

acknowledged as the owner of four mining d. Non-payment of the royalties thereon as

claims respectively named as Bonito-I, provided in the RAWOP
Bonito-II, Bonito-III, and Bonito-IV, with a total
area of 288.8656 hectares, situated in In response, BENGUET'S MANAGER FOR
Barangay Luklukam, Sitio Bagong Bayan, LEGAL SERVICES, REYNALDO P.
Municipality of Jose Panganiban, Camarines MENDOZA, wrote J.G. Realty a letter dated
Norte. March 8, 1999, 8 therein alleging that
Benguet complied with its obligations under
In the RAWOP, BENGUET obligated itself to the RAWOP by investing PhP42.4 million to
perfect the rights to the mining claims and/or rehabilitate the mines, and that the
otherwise acquire the mining rights to the commercial operation was hampered by the
mineral claims. Within 24 months from the non-issuance of a Mines Temporary Permit by
execution of the RAWOP, Benguet should the Mines and Geosciences Bureau (MGB)
also cause the examination of the mining which must be considered as force majeure,
claims for the purpose of determining whether entitling Benguet to an extension of time to
or not they are worth developing with prosecute such permit.
reasonable probability of proDtable BENGUET also alleged that the nature of the
production. Benguet undertook also to furnish mining business made it diIcult to specify a
J.G. Realty with a report on the examination, time limit for the RAWOP. Benguet then
within a reasonable time after the completion argued that the royalties due to J.G. Realty
of the examination. Moreover, also within the were in fact in its oIce and ready to be picked
examination period, Benguet shall conduct all up at any time. It appeared that, previously,
necessary exploration in accordance with a the practice by J.G. Realty was to pick-up
prepared exploration program. checks from Benguet representing such
royalties. However, starting August 1994, J.G.
It is also provided in the RAWOP that if the Realty allegedly refused to collect such
mining claims were placed in commercial checks from Benguet. Thus, Benguet posited
production by Benguet, J.G. REALTY should that there was no valid ground for the
be entitled to a royalty of five percent (5%) of termination of the RAWOP. It also reminded
net realizable value, and to royalty for any J.G. Realty that it should submit the
production done by Benguet whether during disagreement to arbitration rather than
the examination or development periods. unilaterally terminating the RAWOP.
Thus, on August 9, 1989, the EXECUTIVE Realty filed a Petition for Declaration of
VICE-PRESIDENT OF BENGUET, ANTONIO Nullity/Cancellation of the RAWOP.
N. TACHULING, issued a letter informing J.G.
Realty of its intention to develop the mining POA issued a Decision where Supplemental
claims. However, on February 9, 1999, J.G. Agreement was declared cancelled and
REALTY, through its PRESIDENT, JOHNNY without effect.
L. TAN, then sent a letter to the President of
Benguet informing the latter that it was ISSUE
terminating the RAWOP on the following
grounds: Should the controversy have first been
submitted to arbitration before the POA took
a. The fact that your company has failed to cognizance of the case? YES
perform the obligations set forth in the
RAWOP, i.e., to undertake development RULING
works within 2 years from the execution of the
Agreement; Before we dwell on the substantive issues, we
find that the instant petition can be denied
b. Violation of the Contract by allowing high outright as Benguet resorted to an improper
graders to operate on our claim. remedy.
c. No stipulation was provided with respect to This Court has already invalidated such
the term limit of the RAWOP. provision in Carpio v. Sulu Resources
Development Corp. , ruling that a decision of

the MAB must first be appealed to the Court dispute through arbitration by a third party."
of Appeals (CA) under Rule 43 of the Rules of While a VOLUNTARY ARBITRATOR is not
Court, before recourse to this Court may be part of the governmental unit or labor
had. Thus, Benguet should have filed the department's personnel, said arbitrator
appeal with the CA. renders arbitration services provided for under
labor laws.
Petitioner having failed to properly appeal to
the CA under Rule 43, the decision of the There is a clear distinction between
MAB has become final and executory. On this compulsory and voluntary arbitration. The
ground alone, the instant petition must be arbitration provided by the POA is
denied. compulsory, while the nature of the arbitration
provision in the RAWOP is voluntary, not
First Issue: The case should have first been involving any government agency. Thus, J.G.
brought to voluntary arbitration before the Realty's argument on this matter must fail.
POA
There can be no quibbling that POA is a
BENGUET argues that the POA should have quasi-judicial body which forms part of the
Drst referred the case to voluntary arbitration DENR, an administrative agency. Hence, the
before taking cognizance of the case, citing provision on mandatory resort to arbitration,
Sec. 2 of RA 876 on persons and matters freely entered into by the parties, must be
subject to arbitration. held binding against them.
On this issue, we rule for Benguet. In sum, on the issue of whether POA should
have referred the case to voluntary arbitration,
In RA 9285 OR THE "ALTERNATIVE we find that, indeed, POA has NO
DISPUTE RESOLUTION ACT OF 2004," the jurisdiction over the dispute which is
Congress reiterated the efficacy of arbitration governed by RA 876, the arbitration law.
as an alternative mode of dispute resolution
by stating in Sec. 32 thereof that domestic However, we find that Benguet is already
arbitration shall still be governed by RA 876. estopped from questioning the POA's
Clearly, a contractual stipulation that requires jurisdiction. As it were, when J.G. Realty
prior resort to voluntary arbitration before the filed DENR Case No. 2000-01, Benguet filed
parties can go directly to court is not illegal its answer and participated in the proceedings
and is in fact promoted by the State. Thus, before the POA, Region V. Secondly, when
petitioner correctly cites several cases the adverse March 19, 2001 POA Decision
whereby arbitration clauses have been upheld was rendered, it filed an appeal with the MAB
by this Court. in Mines Administrative Case No. R-M-2000-
01 and again participated in the MAB
J.G. Realty's contention, that prior resort to proceedings.
arbitration is unavailing in the instant case
because the POA's mandate is to arbitrate When the adverse March 17, 2004 MAB
disputes involving mineral agreements, is Resolution was issued, Benguet Dled a
misplaced. A distinction must be made petition with this Court pursuant to Sec. 79 of
between voluntary and compulsory arbitration. RA 7942 impliedly recognizing MAB's
In Ludo and Luym Corporation v. jurisdiction. In this factual milieu, the Court
Saordino, the Court had the occasion to rules that the jurisdiction of POA and that of
distinguish between the two types of MAB can no longer be questioned by Benguet
arbitrations: at this late hour. What Benguet should have
done was to immediately challenge the
COMPULSORY ARBITRATION has been POA's jurisdiction by a special civil action
defined both as "the process of settlement of for certiorari when POA ruled that it has
labor disputes by a government agency which jurisdiction over the dispute.
has the authority to investigate and to make
an award which is binding on all the parties, Second Issue: The cancellation of the
and as a mode of arbitration where the parties RAWOP was supported by evidence
are compelled to accept the resolution of their

Benguet's arguments are bereft of merit. RAWOP. Hence, Benguet has no one to
blame but itself for its predicament.
The fact that there was the previous practice
whereby J.G. Realty picked-up the checks POLICY AND OBJECTIVES OF ARBITRATION
from Benguet is unavailing. The mode of
payment is embodied in a contract between REPUBLIC ACT 9825 (ADR ACT OF 2004)
the parties. As such, the contract must be
considered as the law between the parties SEC. 2. Declaration of Policy. - it is hereby
and binding on both. Thus, after J.G. Realty declared the policy of the State to actively
informed Benguet of the bank account where promote party autonomy in the resolution of
deposits of its royalties may be made, disputes or the freedom of the party to make
Benguet had the obligation to deposit the their own arrangements to resolve their
checks. J.G. Realty had no obligation to disputes. Towards this end, the State shall
furnish Benguet with a Board Resolution encourage and actively promote the use of
considering that the RAWOP itself Alternative Dispute Resolution (ADR) as an
provided for such payment scheme. important means to achieve speedy and
impartial justice and declog court dockets. As
In the instant case, the obligation of Benguet such, the State shall provide means for the use
to pay royalties to J.G. Realty has been of ADR as an efficient tool and an alternative
admitted and supported by the provisions of procedure for the resolution of appropriate
the RAWOP. Thus, the burden to prove such cases. Likewise, the State shall enlist active
obligation rests on Benguet. private sector participation in the settlement of
disputes through ADR. This Act shall be without
Benguet, in the RAWOP, obligated itself to prejudice to the adoption by the Supreme Court
perfect the rights to the mining claims and/or of any ADR system, such as mediation,
otherwise acquire the mining rights to the conciliation, arbitration, or any combination
mineral claims but failed to present any thereof as a means of achieving speedy and
evidence showing that it exerted efforts to efficient means of resolving cases pending
speed up and have the application approved. before all courts in the Philippines which shall be
In fact, Benguet never even alleged that it governed by such rules as the Supreme Court
continuously followed-up the application with may approve from time to time.
the MGB and that it was in constant
communication with the government agency Aside from unclogging judicial dockets,
for the expeditious resolution of the arbitration also hastens the resolution of
application. Such allegations would show that, disputes, especially of the commercial kind.
indeed, Benguet was remiss in prosecuting It is thus regarded as the "wave of the future" in
the MPSA application and clearly failed to international civil and commercial disputes. (LM
comply with its obligation in the RAWOP. Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc)
Third Issue: There is no unjust enrichment in
the instant case Among the pertinent features of RA 9285
applying and incorporating the UNCITRAL
Based on the foregoing discussion, the Model Law are the following:
cancellation of the RAWOP was based on
valid grounds and is, therefore, justified. The (1) The RTC must refer to arbitration in
necessary implication of the cancellation is proper cases
the cessation of Benguet's right to prosecute
MPSA Application No. APSA-V-0009 and to
further develop such mining claims. Under Sec. 24, the RTC does not have
jurisdiction over disputes that are properly
Clearly, there is no unjust enrichment in the subject of arbitration pursuant to an
the instant case as the cancellation of the arbitration clause, and mandates the referral
RAWOP, which left Benguet without any to arbitration in such cases, thus:
legal right to participate in further
developing the mining claims, was SEC. 24. Referral to Arbitration.––A
brought about by its violation of the court before which an action is brought

in a matter which is the subject matter of x xxx

an arbitration agreement shall, if at least
one party so requests not later than the SEC. 43. Recognition and Enforcement
pre-trial conference, or upon the request of Foreign Arbitral Awards Not Covered
of both parties thereafter, refer the by the New York Convention.––The
parties to arbitration unless it finds that recognition and enforcement of foreign
the arbitration agreement is null and arbitral awards not covered by the New
void, inoperative or incapable of being York Convention shall be done in
performed. accordance with procedural rules to be
promulgated by the Supreme Court. The
(2) Foreign arbitral awards must be Court may, on grounds of comity and
confirmed by the RTC reciprocity, recognize and enforce a
non-convention award as a convention
Foreign arbitral awards while mutually stipulated award.
by the parties in the arbitration clause to be final
and binding are not immediately enforceable or SEC. 44. Foreign Arbitral Award Not
cannot be implemented immediately. Sec. Foreign Judgment.––A foreign arbitral
3543 of the UNCITRAL Model Law stipulates the award when confirmed by a court of a
requirement for the arbitral award to be foreign country, shall be recognized and
recognized by a competent court for enforced as a foreign arbitral award and
enforcement, which court under Sec. 36 of the not as a judgment of a foreign court.
UNCITRAL Model Law may refuse recognition
or enforcement on the grounds provided for. RA A foreign arbitral award, when confirmed
9285 incorporated these provisos to Secs. 42, by the Regional Trial Court, shall be
43, and 44 relative to Secs. 47 and 48, thus: enforced in the same manner as final
and executory decisions of courts of law
SEC. 42. Application of the New York of the Philippines
Convention.––The New York
Convention shall govern the recognition x xxx
and enforcement of arbitral awards
covered by said Convention. SEC. 47. Venue and Jurisdiction.––
Proceedings for recognition and
The recognition and enforcement of enforcement of an arbitration agreement
such arbitral awards shall be filed with or for vacations, setting aside, correction
the Regional Trial Court in accordance or modification of an arbitral award, and
with the rules of procedure to be any application with a court for
promulgated by the Supreme Court. arbitration assistance and supervision
Said procedural rules shall provide that shall be deemed as special proceedings
the party relying on the award or and shall be filed with the Regional Trial
applying for its enforcement shall file Court (i) where arbitration proceedings
with the court the original or are conducted; (ii) where the asset to be
authenticated copy of the award and the attached or levied upon, or the act to be
arbitration agreement. If the award or enjoined is located; (iii) where any of the
agreement is not made in any of the parties to the dispute resides or has his
official languages, the party shall supply place of business; or (iv) in the National
a duly certified translation thereof into Judicial Capital Region, at the option of
any of such languages. the applicant.
The applicant shall establish that the SEC. 48. Notice of Proceeding to Parties.––In a
country in which foreign arbitration special proceeding for recognition and
award was made in party to the New enforcement of an arbitral award, the Court shall
York Convention. send notice to the parties at their address of
record in the arbitration, or if any part cannot be
served notice at such address, at such party’s

last known address. The notice shall be sent al and an award given by a local arbitral tribunal
least fifteen (15) days before the date set for the are the specific grounds or conditions that vest
initial hearing of the application. jurisdiction over our courts to review the awards.
(3) The RTC has jurisdiction to review foreign For foreign or international arbitral awards which
arbitral awards must first be confirmed by the RTC, the grounds
for setting aside, rejecting or vacating the award
Sec. 42 in relation to Sec. 45 of RA 9285 by the RTC are provided under Art. 34(2) of the
designated and vested the RTC with specific UNCITRAL Model Law.
authority and jurisdiction to set aside, reject, or
vacate a foreign arbitral award on grounds For final domestic arbitral awards, which also
provided under Art. 34(2) of the UNCITRAL need confirmation by the RTC pursuant to Sec.
Model Law. Secs. 42 and 45 provide: 23 of RA 876 and shall be recognized as final
and executory decisions of the RTC, they may
SEC. 42. Application of the New York only be assailed before the RTC and vacated on
Convention.––The New York the grounds provided under Sec. 25 of RA 876.
Convention shall govern the recognition
and enforcement of arbitral awards (5) RTC decision of assailed foreign arbitral
covered by said Convention. award appealable
The recognition and enforcement of Sec. 46 of RA 9285 provides for an appeal

such arbitral awards shall be filed with before the CA as the remedy of an aggrieved
the Regional Trial Court in accordance party in cases where the RTC sets aside,
with the rules of procedure to be rejects, vacates, modifies, or corrects an arbitral
promulgated by the Supreme Court. award, thus:
Said procedural rules shall provide that
the party relying on the award or SEC. 46. Appeal from Court Decision or
applying for its enforcement shall file Arbitral Awards.—A decision of the
with the court the original or Regional Trial Court confirming,
authenticated copy of the award and the vacating, setting aside, modifying or
arbitration agreement. If the award or correcting an arbitral award may be
agreement is not made in any of the appealed to the Court of Appeals in
official languages, the party shall supply accordance with the rules and
a duly certified translation thereof into procedure to be promulgated by the
any of such languages. Supreme Court.
The applicant shall establish that the The losing party who appeals from the
country in which foreign arbitration judgment of the court confirming an
award was made is party to the New arbitral award shall be required by the
York Convention. appellate court to post a counterbond
executed in favor of the prevailing party
If the application for rejection or suspension of equal to the amount of the award in
enforcement of an award has been made, the accordance with the rules to be
Regional Trial Court may, if it considers it promulgated by the Supreme Court.
proper, vacate its decision and may also, on the
application of the party claiming recognition or Thereafter, the CA decision may further be
enforcement of the award, order the party to appealed or reviewed before this Court through
provide appropriate security. a petition for review under Rule 45 of the Rules
of Court.
(4) Grounds for judicial review different in
domestic and foreign arbitral awards
KOREA TECHNOLOGIES CO., LTD. vs. HON.
The differences between a final arbitral award ALBERTO A. LERMA, in his capacity as
from an international or foreign arbitral tribunal Presiding Judge of Branch 256 of Regional

Trial Court of Muntinlupa City, and PACIFIC For the remaining balance of USD306,000 for
GENERAL STEEL MANUFACTURING the installation and initial operation of the plant,
CORPORATION PGSMC issued two postdated checks.
G.R. No. 143581. January 7, 2008
When KOGIES deposited the checks, these
were dishonored for the reason "PAYMENT
In our jurisdiction, the policy is to favor STOPPED." Thus, on May 8, 1998, KOGIES
alternative methods of resolving disputes, sent a demand letter 6 to PGSMC threatening
particularly in civil and commercial disputes. criminal action for violation of Batas Pambansa
Arbitration along with mediation, conciliation, Blg. 22 in case of nonpayment.
and negotiation, being inexpensive, speedy and
less hostile methods have long been favored by PGSMC replied that the two checks it issued
this Court KOGIES were fully funded but the payments
were stopped for reasons previously made
FACTS known to KOGIES.
PETITIONER KOREA TECHNOLOGIES CO., PGSMC informed KOGIES that PGSMC was
Ltd. (KOGIES) is a Korean corporation which is canceling their Contract dated March 5, 1997 on
engaged in the supply and installation of the ground that KOGIES had altered the quantity
Liquefied Petroleum Gas (LPG) Cylinder and lowered the quality of the machineries and
manufacturing plants, while private respondent equipment it delivered to PGSMC, and that
PACIFIC GENERAL STEEL PGSMC would dismantle and transfer the
MANUFACTURING CORP. (PGSMC) is a machineries, equipment, and facilities installed
domestic corporation in the Carmona plant. Five days later, PGSMC
filed before the Office of the Public Prosecutor
PGSMC and KOGIES executed a Contract an Affidavit-Complaint for Estafa docketed as
whereby KOGIES would set up an LPG Cylinder I.S. No. 98-03813 against Mr. Dae Hyun Kang,
Manufacturing Plant in Carmona, Cavite. President of KOGIES.
Subsequently, the parties executed an
Amendment for Contract in Korea. The contract KOGIES wrote PGSMC informing the latter that
and its amendment stipulated that KOGIES will PGSMC could not unilaterally rescind their
ship the machinery and facilities necessary for contract nor dismantle and transfer the
manufacturing LPG cylinders for which PGSMC machineries and equipment on mere imagined
would pay USD 1,224,000. KOGIES would violations by KOGIES. It also insisted that their
install and initiate the operation of the plant for disputes should be settled by arbitration as
which PGSMC bound itself to pay USD 306,000 agreed upon in Article 15, the arbitration clause
upon the plant's production of the 11-kg. LPG of their contract.
cylinder samples. Thus, the total contract price
amounted to USD 1,530,000. PGSMC again wrote KOGIES reiterating the
contents of its June 1, 1998 letter threatening
In 1997, PGSMC entered into a Contract of that the machineries, equipment, and facilities
Lease with WORTH PROPERTIES, INC. installed in the plant would be dismantled and
(Worth) for use of Worth's 5,079-square meter transferred on July 4, 1998. Thus, on July 1,
property with a 4,032- square meter warehouse 1998, KOGIES instituted an Application for
building to house the LPG manufacturing plant. Arbitration before the Korean Commercial
Arbitration Board (KCAB) in Seoul, Korea
After the installation of the plant, the initial pursuant to Art. 15 of the Contract as amended.
operation could not be conducted as PGSMC
encountered financial difficulties affecting KOGIES filed a Complaint for Specific
the supply of materials, thus forcing the parties Performance, against PGSMC before the
to agree that KOGIES would be deemed to have Muntinlupa City Regional Trial Court (RTC).
completely complied with the terms and
conditions of the March 5, 1997 contract. KOGIES alleged that PGSMC had initially
admitted that the checks that were stopped were
not funded but later on claimed that it stopped
payment of the checks for the reason that "their

value was not received" as the former allegedly interlocutory order via a petition for certiorari
breached their contract by "altering the quantity under Rule 65.
and lowering the quality of the machinery and
equipment" installed in the plant and failed to The Core Issue: Article 15 of the Contract
make the plant operational although it earlier
certified to the contrary as shown in a January Article 15. Arbitration. — All disputes,
22, 1998 Certificate. Likewise, KOGIES averred controversies, or differences which may arise
that PGSMC violated Art. 15 of their Contract, as between the parties, out of or in relation to or in
amended, by unilaterally rescinding the contract connection with this Contract or for the breach
without resorting to arbitration. KOGIES also thereof, shall finally be settled by arbitration in
asked that PGSMC be restrained from Seoul, Korea in accordance with the Commercial
dismantling and transferring the machinery and Arbitration Rules of the Korean Commercial
equipment installed in the plant which the latter Arbitration Board. The award rendered by the
threatened to do on July 4, 1998. arbitration(s) shall be final and binding upon both
parties concerned. (Emphasis supplied.)
PGSMC filed an opposition to the TRO arguing
that KOGIES was not entitled to the TRO since Petitioner claims the RTC and the CA erred in
Art. 15, the arbitration clause, was null and void ruling that the arbitration clause is null and void.
for being against public policy as it ousts the
local courts of jurisdiction over the instant Petitioner is correct.
controversy.
Established in this jurisdiction is the rule that the
RTC issued an Order denying the application for law of the place where the contract is made
a writ of preliminary injunction, reasoning that governs. LEX LOCI CONTRACTUS. The
PGSMC had paid KOGIES USD 1,224,000, the contract in this case was perfected here in the
value of the machineries and equipment as Philippines. Therefore, our laws ought to govern.
shown in the contract such that KOGIES no Nonetheless, ART. 2044 OF THE CIVIL CODE
longer had proprietary rights over them. And sanctions the validity of mutually agreed arbitral
finally, the RTC held that Art. 15 of the clause or the finality and binding effect of an
Contract as amended was invalid as it tended arbitral award. Art. 2044 provides, "Any
to oust the trial court or any other court stipulation that the arbitrators' award or
jurisdiction over any dispute that may arise decision shall be final, is valid , without
between the parties. KOGIES' prayer for an prejudice to Articles 2038, 2039 and 2040."
injunctive writ was denied. (Emphasis supplied.)
CA rendered the assailed Decision affirming the The arbitration clause was mutually and
RTC Orders and dismissing the petition for voluntarily agreed upon by the parties. It has
certiorari filed by KOGIES; agreed with the lower not been shown to be contrary to any law, or
court that an arbitration clause which provided against morals, good customs, public order,
for a final determination of the legal rights of the or public policy. There has been no showing
parties to the contract by arbitration was against that the parties have not dealt with each
public policy. other on equal footing. We find no reason
why the arbitration clause should not be
ISSUE respected and complied with by both parties.
RULING In Gonzales v. Climax Mining Ltd., we held

that submission to ARBITRATION is a contract
Partly meritorious. and that a clause in a contract providing that all
matters in dispute between the parties shall be
Prematurity of the petition before the CA referred to arbitration is a contract. Again in Del
(Procedural Issue) Monte Corporation-USA v. Court of Appeals,
we likewise ruled that "the provision to submit to
Neither do we think that KOGIES was guilty of arbitration any dispute arising therefrom and the
forum shopping in filing the petition for certiorari. relationship of the parties is part of that contract
KOGIES' only remedy was to assail the RTC's and is itself a contract."

Arbitration clause not contrary to public Commission on International Trade Law

policy (UNCITRAL) in the New York Convention on
June 21, 1985, the Philippines committed itself
The arbitration clause which stipulates that the to be bound by the Model Law.
arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration We have even incorporated the Model Law in
Rules of the KCAB, and that the arbitral award is REPUBLIC ACT NO. (RA) 9285, otherwise
final and binding, is not contrary to public known as the Alternative Dispute Resolution Act
policy of 2004 entitled An Act to Institutionalize the Use
of an Alternative Dispute Resolution System in
LM Power Engineering Corporation v. Capitol the Philippines and to Establish the Office for
Industrial Construction Groups, Inc., we Alternative Dispute Resolution, and for Other
declared that: Being an inexpensive, speedy and Purposes, promulgated on April 2, 2004.
amicable method of settling disputes,
ARBITRATION — along with mediation, While RA 9285 was passed only in 2004, it
conciliation and negotiation — is encouraged by nonetheless applies in the instant case since it is
the Supreme Court. Aside from unclogging a procedural law which has a retroactive effect.
judicial dockets, arbitration also hastens the Likewise, KOGIES filed its application for
resolution of disputes, especially of the arbitration before the KCAB on July 1, 1998 and
commercial kind. It is thus regarded as the it is still pending because no arbitral award has
"wave of the future" in international civil and yet been rendered. Thus, RA 9285 is
commercial disputes. Brushing aside a applicable to the instant case. Well-settled is
contractual agreement calling for arbitration the rule that procedural laws are construed
between the parties would be a step backward. to be applicable to actions pending and
Consistent with the above-mentioned policy of undetermined at the time of their passage,
encouraging alternative dispute resolution and are deemed retroactive in that sense and
methods, courts should liberally construe to that extent. As a general rule, the retroactive
arbitration clauses. Provided such clause is application of procedural laws does not violate
susceptible of an interpretation that covers the any personal rights because no vested right has
asserted dispute, an order to arbitrate should be yet attached nor arisen from them.
granted. Any doubt should be resolved in favor
of arbitration. Among the pertinent features of RA 9285
applying and incorporating the UNCITRAL
Having said that the instant arbitration clause is Model Law are the following:
not against public policy, we come to the
question on what governs an arbitration clause (1) The RTC must refer to arbitration in
specifying that in case of any dispute arising proper cases
from the contract, an arbitral panel will be
constituted in a foreign country and the Under Sec. 24, the RTC does not have
arbitration rules of the foreign country would jurisdiction over disputes that are properly
govern and its award shall be final and the subject of arbitration pursuant to an
binding. arbitration clause, and mandates the referral
to arbitration in such cases, thus:
RA 9285 incorporated the UNCITRAL Model
law to which we are a signatory
SEC. 24. Referral to Arbitration.––A
For domestic arbitration proceedings, we have court before which an action is brought
particular agencies to arbitrate disputes arising in a matter which is the subject matter of
from contractual relations. In case a foreign an arbitration agreement shall, if at least
arbitral body is chosen by the parties, the one party so requests not later than the
arbitration rules of our domestic arbitration pre-trial conference, or upon the request
bodies would not be applied. of both parties thereafter, refer the
parties to arbitration unless it finds that
As signatory to the Arbitration Rules of the the arbitration agreement is null and
UNCITRAL Model Law on International void, inoperative or incapable of being
Commercial Arbitration of the United Nations

performed. promulgated by the Supreme Court. The

Court may, on grounds of comity and
(2) Foreign arbitral awards must be reciprocity, recognize and enforce a
confirmed by the RTC non-convention award as a convention
award.
Foreign arbitral awards while mutually stipulated
by the parties in the arbitration clause to be final SEC. 44. Foreign Arbitral Award Not
and binding are not immediately enforceable or Foreign Judgment.––A foreign arbitral
cannot be implemented immediately. Sec. award when confirmed by a court of a
3543 of the UNCITRAL Model Law stipulates the foreign country, shall be recognized and
requirement for the arbitral award to be enforced as a foreign arbitral award and
recognized by a competent court for not as a judgment of a foreign court.
enforcement, which court under Sec. 36 of the
UNCITRAL Model Law may refuse recognition A foreign arbitral award, when confirmed
or enforcement on the grounds provided for. RA by the Regional Trial Court, shall be
9285 incorporated these provisos to Secs. 42, enforced in the same manner as final
43, and 44 relative to Secs. 47 and 48, thus: and executory decisions of courts of law
of the Philippines
SEC. 42. Application of the New York
Convention.––The New York x xxx
Convention shall govern the recognition
and enforcement of arbitral awards SEC. 47. Venue and Jurisdiction.––
covered by said Convention. Proceedings for recognition and
enforcement of an arbitration agreement
The recognition and enforcement of or for vacations, setting aside, correction
such arbitral awards shall be filed with or modification of an arbitral award, and
the Regional Trial Court in accordance any application with a court for
with the rules of procedure to be arbitration assistance and supervision
promulgated by the Supreme Court. shall be deemed as special proceedings
Said procedural rules shall provide that and shall be filed with the Regional Trial
the party relying on the award or Court (i) where arbitration proceedings
applying for its enforcement shall file are conducted; (ii) where the asset to be
with the court the original or attached or levied upon, or the act to be
authenticated copy of the award and the enjoined is located; (iii) where any of the
arbitration agreement. If the award or parties to the dispute resides or has his
agreement is not made in any of the place of business; or (iv) in the National
official languages, the party shall supply Judicial Capital Region, at the option of
a duly certified translation thereof into the applicant.
any of such languages.
SEC. 48. Notice of Proceeding to
The applicant shall establish that the Parties.––In a special proceeding for
country in which foreign arbitration recognition and enforcement of an
award was made in party to the New arbitral award, the Court shall send
York Convention. notice to the parties at their address of
record in the arbitration, or if any part
x xxx cannot be served notice at such
address, at such party’s last known
SEC. 43. Recognition and Enforcement address. The notice shall be sent al
of Foreign Arbitral Awards Not Covered least fifteen (15) days before the date
by the New York Convention.––The set for the initial hearing of the
application.
recognition and enforcement of foreign
arbitral awards not covered by the New
York Convention shall be done in It is now clear that foreign arbitral awards
accordance with procedural rules to be when confirmed by the RTC are deemed not
as a judgment of a foreign court but as a

foreign arbitral award, and when confirmed, subject to judicial review by the RTC which
are enforced as final and executory can set aside, reject, or vacate it. In this
decisions of our courts of law. sense, what this Court held in Chung Fu
Industries (Phils.), Inc. relied upon by KOGIES
(3) The RTC has jurisdiction to review foreign is applicable insofar as the foreign arbitral
arbitral awards awards, while final and binding, do not oust
courts of jurisdiction since these arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 are not absolute and without exceptions as they
designated and vested the RTC with specific are still judicially reviewable. Chapter 7 of RA
authority and jurisdiction to set aside, reject, or 9285 has made it clear that all arbitral awards,
vacate a foreign arbitral award on grounds whether domestic or foreign, are subject to
provided under Art. 34(2) of the UNCITRAL judicial review on specific grounds provided for
Model Law. Secs. 42 and 45 provide:
(4) Grounds for judicial review different in
domestic and foreign arbitral awards
SEC. 42. Application of the New York
Convention.––The New York
Convention shall govern the recognition The differences between a final arbitral award
and enforcement of arbitral awards from an international or foreign arbitral tribunal
covered by said Convention. and an award given by a local arbitral tribunal
are the specific grounds or conditions that vest
jurisdiction over our courts to review the awards.
The recognition and enforcement of
such arbitral awards shall be filed with
the Regional Trial Court in accordance For foreign or international arbitral awards which
with the rules of procedure to be must first be confirmed by the RTC, the grounds
promulgated by the Supreme Court. for setting aside, rejecting or vacating the award
Said procedural rules shall provide that by the RTC are provided under Art. 34(2) of the
the party relying on the award or UNCITRAL Model Law.
applying for its enforcement shall file
with the court the original or For final domestic arbitral awards, which also
authenticated copy of the award and the need confirmation by the RTC pursuant to Sec.
arbitration agreement. If the award or 23 of RA 876 and shall be recognized as final
agreement is not made in any of the and executory decisions of the RTC, they may
official languages, the party shall supply only be assailed before the RTC and vacated on
a duly certified translation thereof into the grounds provided under Sec. 25 of RA 876.
any of such languages.
(5) RTC decision of assailed foreign arbitral
The applicant shall establish that the award appealable
country in which foreign arbitration
award was made is party to the New Sec. 46 of RA 9285 provides for an appeal
York Convention. before the CA as the remedy of an aggrieved
party in cases where the RTC sets aside,
If the application for rejection or rejects, vacates, modifies, or corrects an arbitral
suspension of enforcement of an award award, thus:
has been made, the Regional Trial
Court may, if it considers it proper, SEC. 46. Appeal from Court Decision or
vacate its decision and may also, on the Arbitral Awards.—A decision of the
application of the party claiming Regional Trial Court confirming,
recognition or enforcement of the award, vacating, setting aside, modifying or
order the party to provide appropriate correcting an arbitral award may be
security. appealed to the Court of Appeals in
accordance with the rules and
Thus, while the RTC does not have procedure to be promulgated by the
jurisdiction over disputes governed by Supreme Court.
arbitration mutually agreed upon by the
parties, still the foreign arbitral award is

The losing party who appeals from the arbitration, and not through an extrajudicial
judgment of the court confirming an rescission or judicial action.
arbitral award shall be required by the
appellate court to post a counterbond The issues arising from the contract between
executed in favor of the prevailing party PGSMC and KOGIES on whether the equipment
equal to the amount of the award in and machineries delivered and installed were
accordance with the rules to be properly installed and operational in the plant in
promulgated by the Supreme Court. Carmona, Cavite; the ownership of equipment
and payment of the contract price; and whether
Thereafter, the CA decision may further be there was substantial compliance by KOGIES in
appealed or reviewed before this Court through the production of the samples, given the alleged
a petition for review under Rule 45 of the Rules fact that PGSMC could not supply the raw
of Court. materials required to produce the sample LPG
cylinders, are matters proper for arbitration.
PGSMC has remedies to protect its interests
Issue on ownership of plant proper for
Thus, based on the foregoing features of RA arbitration
9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject Petitioner assails the CA ruling that the issue
contract. While it may have misgivings on the petitioner raised on whether the total contract
foreign arbitration done in Korea by the price of USD 1,530,000 was for the whole plant
KCAB, it has available remedies under RA and its installation is beyond the ambit of a
9285. Petition for Certiorari.
With our disquisition above, petitioner is correct Petitioner's position is untenable.

in its contention that an arbitration clause,
stipulating that the arbitral award is ?nal and It is settled that questions of fact cannot be
binding, does not oust our courts of jurisdiction raised in an original action for certiorari.
as the international arbitral award, the award of Whether or not there was full payment for the
which is not absolute and without exceptions, is machineries and equipment and installation is
still judicially reviewable under certain conditions indeed a factual issue prohibited by Rule 65.
provided for by the UNCITRAL Model Law on However, what appears to constitute a grave
ICA as applied and incorporated in RA 9285. abuse of discretion is the order of the RTC in
resolving the issue on the ownership of the
Finally, it must be noted that there is nothing in plant when it is the arbitral body (KCAB) and
the subject Contract which provides that the not the RTC which has jurisdiction and
parties may dispense with the arbitration authority over the said issue. The RTC's
clause. determination of such factual issue constitutes
grave abuse of discretion and must be reversed
Unilateral rescission improper and illegal and set aside.
Having ruled that the arbitration clause of the It is thus beyond cavil that the RTC has authority
subject contract is valid and binding on the and jurisdiction to grant interim measures of
parties, and not contrary to public policy; protection.
consequently, being bound to the contract of
arbitration, a party may not unilaterally Secondly, considering that the equipment and
rescind or terminate the contract for machineries are in the possession of PGSMC, it
whatever cause without first resorting to has the right to protect and preserve the
arbitration. equipment and machineries in the best way it
can. Considering that the LPG plant was non-
Where an arbitration clause in a contract is operational, PGSMC has the right to dismantle
availing, neither of the parties can and transfer the equipment and machineries
unilaterally treat the contract as rescinded either for their protection and preservation or for
since whatever infractions or breaches by a the better way to make good use of them which
party or differences arising from the contract
must be brought first and resolved by

is ineluctably within the management discretion

of PGSMC.
Thirdly, and of greater import is the reason that

maintaining the equipment and machineries in
Worth’s property is not to the best interest of
PGSMC due to the prohibitive rent while the
LPG plant as set-up is not operational. PGSMC
was losing PhP322,560 as monthly rentals or
PhP3.87M for 1998 alone without considering
the 10% annual rent increment in maintaining
the plant.
Fourthly, and corollarily, while the KCAB can

rule on motions or petitions relating to the
preservation or transfer of the equipment and
machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC
allowing the transfer of the equipment and
machineries given the non-recognition by the
lower courts of the arbitral clause, has accorded
an interim measure of protection to PGSMC
which would otherwise been irreparably
damaged.
Fifth, KOGIES is not unjustly prejudiced as it has

already been paid a substantial amount based
on the contract. Moreover, KOGIES is amply
protected by the arbitral action it has instituted
before the KCAB, the award of which can be
enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled
to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.
Finally, while PGSMC may have been granted

the right to dismantle and transfer the subject
equipment and machineries, it does not have the
right to convey or dispose of the same
considering the pending arbitral proceedings to
settle the differences of the parties. PGSMC
therefore must preserve and maintain the
subject equipment and machineries with the
diligence of a good father of a family until
final resolution of the arbitral proceedings
and enforcement of the award, if any.

MODULE 2 gives to States in preparing new

arbitration laws. It is advisable to follow
OVERVIEW OF INTERNATIONAL the model as closely as possible since
COMMERCIAL ARBITRATION that would be the best contribution to the
desired harmonization and in the best
ADR ACT’S ADOPTION OF THE UNCITRAL interest of the users of international
MODEL arbitration, who are primarily foreign
(ARTICLE 19 of the ADR Act) parties and their lawyers.
SEC. 19. Adoption of the Model Law on Background to the Model Law
International Commercial Arbitration.
International Commercial Arbitration shall be The Model Law is designed to meet concerns
governed by the Model Law on International relating to the current state of national laws on
Commercial Arbitration adopted by the UN arbitration. The need for improvement and
Commission on International Trade Law on June harmonization is based in findings that domestic
21, 1985, copy of which is hereto attached as laws are often inappropriate for international
Appendix “A”. cases and that considerable disparity exists
between them
RATIONALE IN ADOPTING THE MODEL LAW
Therefore, there was:
Based on the Explanatory Note by the  Inadequacy of domestic laws
UNCITRAL Secretariat on the Model Law on  Disparity between national laws
International Commercial Arbitration
1. The UNCITRAL Model Law on ICA was THE MODEL LAW TO APPLY AS LEX
adopted by the UN Commission on SPECIALIS
International Trade Law (UNCITRAL) on
21 June 1985, at the close of the Once the Model Law is enacted in State X, “this
Commission’s 18th annual session, the Law applies” as Lex specialis, i.e. to the
General Assembly, in its resolution exclusion of all other pertinent provisions of non-
40/72 of 11 December 1985, treaty law, whether contained, for example, in a
recommended “that all States give due code of civil procedure or in a separate law on
consideration to the Model Law on arbitration. This priority, while not expressly
International Commercial Arbitration, in stated in the Model Law, follows from the
view of the desirability and uniformity of legislative intent to establish a special regime for
the law of arbitral procedures and the ICA.
specific needs of ICA practice.
It should be noted that the Model Law prevails
2. The Model Law constitutes a sound and over other provisions only in respect of those
promising basis for the desired subject-matters and questions covered by the
harmonization and improvement of Model Law. Therefore, other provisions of
national laws. It covers all stages of the national law remain applicable if they deal with
arbitral process from the arbitration issues which, though relevant to ICA, have been
agreement to the recognition and left outside the Model Law.
enforcement of the arbitral award and
reflects a worldwide consensus on the MATTERS NOT COVERED BY MODEL LAW
principles and important issues of
international arbitration practice. It is PHILIPPINES ADOPTED A DUAL SYSTEM OF
acceptable to States of all regions and ARBITRATION
the different legal or economic systems
of the world. SEC. 19. Adoption of the Model Law in
3. The form of a model law was chosen as International Commercial Arbitration shall be
the vehicle for harmonization and governed by the Model Law on International
improvement in view of the flexibility it Commercial Arbitration adopted by the UN
Commission on International Trade Law on June

21, 1985, copy of which is hereto attached as parties have their places of business:
Appendix “A”.
- The place of arbitration is determine
SEC. 32. Law Governing Domestic in, or pursuant to, the arbitration
Arbitration. Domestic Arbitration shall continue agreement;
to be governed by RA No. 876 otherwise known
as “The Arbitration Law” as amended by this - In any place where a substantial
Chapter. The term “domestic arbitration” as used part of the obligations of the
herein shall mean an arbitration that is not commercial relationship is to eb
international as defined in Article (3) of the performed or the place with which
Model Law. the subject matter of the dispute is
most closely connected; or
The Philippines adopted a dual system of
arbitration under which different rules applies to (c) The parties have expressly agreed that
the arbitration in the Philippines. Depending on the subject matter of the arbitration
the nature of the dispute whether it is classified agreement relates to more than one
as domestic or international. country.
The ADR act provides that International For this purpose:

Commercial Arbitration shall be governed by
the UNCITRAL Model Law. Sec. 19 (c) of ADR (a) If a party has more than one place of
Act business, the place of business is that
which has the closest relationship to the
The Domestic Arbitration on the other hand, arbitration agreement.
shall continue to be governed by RA 9876 as If a party does not have a place of business,
amended by Chapter 5 of the ADR Act. reference is to be made to his/her habitual
residence.
To distinguish between a Domestic Arbitration
and an International Commercial Arbitration, TESTS OF INTERNATIONALITY
reference may be made from the reference
based on Module 1. PLACE OF BUSINESS
WHAT IS AN INTERNATIONAL COMMERCIAL If a party has 2 or more places of business, one

ARBITRATION of which is in the same State as is the other
party’s place of business, it is necessary to
Q. What is an International Commercial determine which of his places is relevant for the
Arbitration? purposes of Par. 2. According to par. 3, first
sentence, it is the one which has the closest
There are different tests of Internationality, the ff relationship to the arbitration agreement. An
are: instance of such close relationship would be that
a contract, including an arbitration clause, is fully
1. Place of Business negotiated by the branch or office in question,
2. Place of Arbitration even if it is signed at another place. (e.g.,
3. Place of Performance principal place of business)
ART. 1.6 (C)(8) of the IRR of the ADR Act The criterion of “closest connection” was
adopted because it was thought to reflect better
International Arbitration means an arbitration the expectations of the parties and, in particular,
where: for the sake of consistency with the 1980 Vienna
Sales Convention.
(a) The parties to an arbitration agreement
have, at the time of the conclusion of the The 2nd sentence of par. 3 deals with rare
agreement, their places of business in situation that a person involved in a commercial
different states; or transaction does not have stablished “place of
(b) One of the following places is situated business”. In such case, his habitual residence
outside the Philippines in which the

would be the decisive place for the purpose of PLACE OF ARBITRATION

par. 2.
ART. 20 OF THE UNCITRAL MODEL LAW.
Atty’s Discussion:
(1) The parties are free to agree on the
The most important test to distinguish place of arbitration. Failing such
International Arbitration from Domestic agreement, the place of arbitration shall
Arbitration is whether the place of business of be determined by the arbitral tribunal
parties to the dispute are in different states. having regard to the circumstances of
There have been suggestions to use Coult the case, including the convenience of
Seats, Uncoult, or Coult place of business. the parties.
Notwithstanding the provisions of par. 1 of this
In lieu of places of business, in adopting the latte article, the arbitral tribunal may, unless
place of business; the first place was understood otherwise agreed by the parties, meet at any
to refer to the place of business with the closest place it considers appropriate for consultation
relationship to the Arbitration Agreement. among its members, for hearing witnesses,
experts or the parties, or for inspection of goods,
Model Law Article 1 (4)(a) applies to determine other property or documents.
which of two or more places of business of a
party is relevant for the purpose of Model Law. Atty’s Discussion
Particularly, Article 1 (3)(a)(b)(c), as the one
which has the closest connection to the Arbitration Institutions recommend the parties to
arbitration agreement. include in an arbitration agreement a stipulation
as to the place of arbitration. However, more
This is particularly an important test to apply to a often than not, the arbitration agreement would
Multi-National Company with branches in states simply provide that “any dispute arising from the
outside of the state where its principal or head contract shall be resolved in arbitration. “
office is located.
Now, where the arbitration has to be decided as
Under Article 1 (4) of the Model Law, the state to the place of arbitration, according to Model
where the principal or head office is located is Law Article 20 – the parties are free to agree on
irrelevant in a case where a contract which the place of arbitration.
included an Arbitration Clause is negotiated by a
Branch Office or may have been signed at the Note – failing such agreement as to the place of
Head Office. Thus, an Arbitration is International arbitration, shall be determined by the arbitral
if parties who have their place of business tribunal.
outside the Philippines, agree in their arbitration
agreement to have the Philippines as the place It is important to note that the arbitration does
of arbitration. not become International just because the place
of arbitration chose by an arbitral tribunal or an
This is exemplified by a recent case filed by a arbitration institution is situated outside the state
Dispute Resolution Senator where the parties in which the parties had their place of business.
have agreed that Metro Manila will be the place
of arbitration. This refers to PDRCI Case No. 45. Clearly, it would then be a foreign rather than a
domestic arbitration. Thus, sec. 30 of the ADR
Note – there is NO Stare Decisis when it comes Act, while recognizing the general rule – that the
to PDRCI cases parties are free to agree on the place of
arbitration, now provides that failing such
Note – In adopting the Model Law, the agreement – the place of arbitration shall be in
Philippines in effect, waives the right of a Metro Manila, Philippines.
Philippine court to invoke forum non-
convenience as a ground in dismissing a case. If The 2nd paragraph of Sec. 30 of the ADR Act
its aid is sought and support of arbitration in the provides that the parties may agree or in the
Philippines between parties who may have their absence of agreement between the parties, the
place of business outside the Philippines. Arbitral Tribunal may decide to choose any place
where it considers appropriate for consultation

among its members, for hearing its witnesses, CHAPTER 4 – INTERNATIONAL

experts or the parties or for the inspection of COMMERCIAL ARBITRATION
goods other property or documents.
RULE 1 – GENERAL PROVISIONS
Note – However, the PDRCI and CIAC have
already started hearing cases virtually. ART. 4.1. Scope of application.
(a) This Chapter applies to ICA, subject to

PLACE OF PERFROMANCE any agreement in force between the
Philippines and other state or states.
Atty’s Discussion
(b) This Chapter applies only if the place or
Another test of Internationality is whether seat of arbitration is the Philippines and
substantial part of the obligation arises under the in default of any agreement of the
Commercial relationship which is to be parties on the applicable rules.
performed in State other than the ones which the
parties have their places of business. This Chapter shall not affect any other law of the
Philippines by virtue of which certain disputed
The obligation of a Japan based company to may not be submitted to arbitration or may be
supply to a Malaysia based contractor in a state submitted to arbitration only according to
other than Japan or Malaysia; for example, in provisions other than those of the ADR Act.
the Philippines is a concrete example under
Model Law Art. 1 (3)(b)(ii). ART. 4.2. Rules of Interpretation
An arbitration would be International if the place (a) ICA shall be governed by the Model Law
with which the subject matter of the dispute is on ICA
most closely connected, is outside of states in (b) In interpreting this Chapter, regard shall
which the parties have their places of business. be had to the international origin of the
This treat of an exceptional case where the Model Law and to the need for
International character of the dispute may be unfiromity in its interpretation. Resort
ascertained only after it arises. may be made to the travaux
preparatories and the Report of the
The issue as to whether the substantial part of Secretary-General of the UNCITRAL
the obligation of the commercial relationship is dated March 1985 entitled, “ICA:
disputant which should only be established if Analytical Commentary on Draft Text
only for the purpose of determining whether or identified by reference number A/CN.
not the arbitration should be governed by the 9/264”
Model Law. (c) Moreover, in interpreting this Chapter,
the court shall have due regard to the
In the case, the parties to both contracts are policy of the law in favor of arbitration
Hongkong Companies. Most of the acts and the policy of the Philippines to
performed by the parties in the compliance actively promote party autonomy in the
therewith were done in Hongkong. But since the resolution of disputes or the freedom of
delivery of goods was to be made from the parties to make their own
Hongkong to China, the Court held that a arrangement to resolve their dispute.
substantial part of the obligation was to be (d) Where a provision of this Chapter,
performed in China which thereby placed the except the Rules applicable to the
arbitration of the dispute under the regime of the substance of the dispute, leaves the
Model Law. At the time of submission of this parties free to determine a certain issue,
dispute to arbitration, Hongkong was still a such freedom includes the right of the
British Territory. parties to authorize a 3rd party, including
an institution, to make that
determination.
COVERAGE OF THE IRR PROVISIONS ON (e) Where a provision of this Chapter refers
ICA to the fact that the parties have agreed
or that they may agree or in any other

way refers to an arrangement of the

parties, such agreement includes any ART. 4.6. Court or Other Authority for Certain
arbitration rules referred to in that Functions of Arbitration Assistance and
agreement. Supervision.
Where a provision of this Chapter, other than in
par. (a) of Art. 4.25 and par. (b)(i) of Art. 4.32, (a) The functions referred to in paragraphs
refers to a claim, it also applies to a counter- (c) and (d) of Article 4.11 (Appointment
claim and where it refers to a defense, it also of Arbitrators) and paragraph (c) of
applies to a defense to such counter-claim Article 4.13 (Challenge Procedure) and
paragraph (a) of Article 4.14 (Failure or
ART. 4.3. Receipt of Written Impossibility to Act) shall be performed
Communications. by the appointing authority as defined in
Article 1.6 C1, unless the latter shall fail
(a) Unless otherwise agreed by the parties: or refuse to act within thirty (30) days
from receipt of the request in which case
- any written communication is the applicant may renew the application
deemed to have been received if it with the court. The appointment of an
is delivered to the addressee arbitrator is not subject to appeal or
personally or at his/her place of motion for reconsideration.
business, habitual residence or
mailing address; if none of these (b) The functions referred to in paragraph
can be found after making a (c) of Article 4.16 (c) (Competence of
reasonable inquiry, a written Arbitral Tribunal to Rule on its
communication is deemed to have Jurisdiction), second paragraph of
been received if it is sent to the Article 4.34 (Application for Setting
addressee's last known place of Aside an Exclusive Recourse Against
business, habitual residence or Arbitral Award), Article 4.35
mailing address by registered letter (Recognition and Enforcement), Article
or any other means which provides 4.38 (Venue and Jurisdiction), shall be
a record of the attempt to deliver it; performed by the appropriate Regional
Trial Court.
- the communication is deemed to
have been received on the day it is A Court may not refuse to grant, implement or
so delivered enforce a petition for an interim measure,
including those provided for in Article 4.9
The provisions of this Article do not apply to (Arbitration Agreement and Interim Measures by
communications in court proceedings, which Court), Article 4.11 (Appointment of Arbitrators),
shall be governed by the ROC. Article 4.13 (Challenge Procedure), Article 4.27
(Court Assistance in Taking Evidence), on the
ART. 4.4. Waiver of Right to Object.A party sole ground that the Petition is merely an
who knows that any provision of this Chapter ancillary relief and the principal action is pending
from which the parties may derogate or any with the arbitral tribunal.
requirement under the arbitration agreement has
not been complied with and yet proceeds with MODEL LAW
the arbitration without stating the objections for
such non-compliance without undue delay or if a Overview of the International Commercial
time limit is provided therefor, within such period Arbitration
of time, shall be deemed to have waived the
right to object The adoption of the Model Law in the ICA is
found in Section 19 of the ADR Act
ART. 4.5. Extent of Court Intervention.In
matters governed by this Chapter, no court shall SEC. 19. Adoption of the Model Law on
intervene except where so provided in the ADR International Commercial Arbitration. -
Act. Resort to Philippine courts for matters within International commercial arbitration shall be
the scope of the ADR Act shall be governed by governed by the Model Law on International
the Special ADR Rules Commercial Arbitration (the "Model Law")

adopted by the United Nations Commission on It is so only in respect of matters covered by the
International Trade Law on June 21, 1985 law. In other words, there are matters which are
(United Nations Document A/40/17) and NOT covered by the Model Law (refer to the
recommended approved on December 11, 1985, Syllabus)
copy of which is hereto attached as Appendix
"A". The Model Law has excluded from its coverage
provisions related to:
Q. What is the rationale for the adoption of the
Model Law? 1. Arbitrability of the subject matter of the
dispute
A. In providing in the ADR Act that commercial 2. The capacity of the parties to enter into an
arbitration shall be governed by the Model Law, arbitration agreement
the PH Congress sought to achieve the objective 3. State immunity from suit
of the UN Gen Ass expressed in its Resolution 4. Enforcement by national courts of interim
No. 40-72 of December 11, 1985 for member measures of protection granted by an
states to give due consideration to the Model arbitrator
Law in International Commercial Arbitration, in 5. The competence of an arbitrator to reform a
view of the desirability of uniformity of the law of contract
arbitral procedures and the specific needs of 6. Fixing of arbitrators fee
international commercial arbitration practice". 7. Request for making deposit fees
8. Time limit of an award
It is stated that the Model Law is said to reflect a 9. Consolidation of arbitral proceedings
worldwide consensus on the principles and 10. Contractual relations between the arbitrators
important issues of international arbitration and parties or arbitration bodies
practice. 11. Security for fees or costs or period of time
for the enforcement of arbitral awards
The Model Law is actually the product of the 12. The enforcement of interim measures of
work of a working group of experts who met in protection granted by arbitrators
Vienna from 1982 to 1985, which was submitted 13. The manner in which arbitration award is
to and approve by the UNCITRAL in meeting of forced
delegates representing 32 states before it was
submitted to the Gen Ass of the UN. Atty. VC: Our Congress is aware of these gaps
and enacting the ADR Act, the Congress
The additional provisions introduced in the ADR actually made NO attempt to fill in the gaps
Act were intended to strengthen International because of the difficulty of doing so. Moreover,
Commercial Arbitration in the PH substantial changes in the Model Law may be
viewed by other countries as NOT contributing to
LEX SPECIALIS | LIMITS OF MODEL LAW the establishment of a unified legal framework
for the fair and efficient settlement of disputes
Model Law to apply as Lex Specialis – the arising in International Commercial Relations.
arbitration law that may be enacted by a State For the time being, disputes governing
adopting the Model Law with or without interpretation for example, may be resolved by
modification is intended to apply as lex specialis reference to the appropriate governing law of the
which means to the exclusion of all other none contract. Following the examples of other
treaty laws wherever they may be contained. countries, the ADR Act may be modified at a
While this is not expressly provided for the later date to insert other important provisions to
Model Law, it is gleaned from the legislative govern matters that are NOT yet covered in this
intent to establish a special regime for act
RULES OF INTERPRETATION
Atty. VC: When I say legislative intent, I mean
the analytical commentary on UNCITRAL Article 4.2. Rules of Interpretation.
yearbook 1985
(a) International commercial arbitration shall be
Note governed by the Model Law on International
Commercial Arbitration.

(b) In interpreting this Chapter, regard shall be arbitrators, subject to the provisions of
had to the international origin of the Model paragraphs (d) and (e) of this Article.
Law and to the need for uniformity in its (c) Failing such agreement: (i) in an
interpretation. Resort may be made to the arbitration with three (3) arbitrators,
travaux preparatoires and the Report of the each party shall appoint one arbitrator,
Secretary-General of the United Nations and the two (2) arbitrators thus
Commission on International Trade Law appointed shall appoint the third
dated March 1985 entitled, "International arbitrator; if a party fails to appoint the
Commercial Arbitration: Analytical arbitrator within thirty (30) days of
Commentary on Draft Text identified by receipt of a request to do so from the
reference number A/CN. 9/264". other party, or if the two (2) arbitrators
(c) Moreover, in interpreting this Chapter, the fail to agree on the third arbitrator within
court shall have due regard to the policy of thirty (30) days of their appointment, the
the law in favor of arbitration and the policy appointment shall be made, upon
of the Philippines to actively promote party request of a party, by the appointing
autonomy in the resolution of disputes or the authority; (ii) in an arbitration with a sole
freedom of the parties to make their own arbitrator, if the parties are unable to
arrangement to resolve their dispute. agree on the arbitrator, he/she shall be
(d) Where a provision of this Chapter, except appointed, upon request of a party, by
the Rules applicable to the substance of the the appointing authority.
dispute, leaves the parties free to determine (d) Where, under an appointment
a certain issue, such freedom includes the procedure agreed upon by the parties,
right of the parties to authorize a third party, (i) a party fails to act as required under
including an institution, to make that such procedure, or (ii) the parties, or two
determination. arbitrators, are unable to reach an
(e) Where a provision of this Chapter refers to agreement expected of them under such
the fact that the parties have agreed or that procedure, or (iii) a third party, including
they may agree or in any other way refers to an institution, fails to perform any
an agreement of the parties, such function entrusted to it under such
agreement includes any arbitration rules procedure, any party may request the
referred to in that agreement. appointing authority to take the
(f) Where a provision of this Chapter, other necessary measure to appoint an
than in paragraph (a) of Article 4.25 (Default arbitrator, unless the agreement on the
of a Party) and paragraphs (b) (i) of Article appointment procedure provides other
4.32 (Termination of Proceedings), refers to means for securing the appointment.
a claim, it also applies to a counter-claim, (e) A decision on a matter entrusted by
and where it refers to a defense, it also paragraphs (c) and (d) of this to the
applies to a defense to such counter-claim. appointing authority shall be
immediately executory and not be
COMPOSITION OF ARBITRAL TRIBUNAL subject to a motion for reconsideration
or appeal. The appointing authority shall
RULE 3 - Composition of Arbitral Tribunal have in appointing an arbitrator, due
regard to any qualifications required of
Article 4.10. Number of Arbitrators. The the arbitrator by the agreement of the
parties are free to determine the number of parties and to such considerations as
arbitrators. Failing such determination, the are likely to secure the appointment of
number of arbitrators shall be three (3). Article an independent and impartial arbitrator
and, in the case of a sole or third
4.11. Appointment of Arbitrators. arbitrator, shall take into account as
.well the advisability of appointing an
(a) No person shall be precluded by reason arbitrator of a nationality other than
of his/her nationality from acting as an those of the parties. A party may bring a
arbitrator, unless otherwise agreed by petition under this Article before the
the parties. court in accordance with the Rules of
(b) The parties are free to agree on a Court or the Special ADR Rules.
procedure of appointing the arbitrator or

DUE PROCESS IN ICA information supplied to the arbitral tribunal

by one party shall be communicated to the
RULE 5 - Conduct of Arbitral Proceedings other party. Also, an expert report or
Article evidentiary document on which the arbitral
tribunal may rely in making its decision shall
4.18. Equal Treatment of Parties. The parties be communicated to the parties.
shall be treated with equality and each party
shall be given a full opportunity of presenting COURT ASSISTANCE IN TAKING OF
his/her case. EVIDENCE
HEARING AND WRITTEN PROCEEDINGS Article 4.27. Court Assistance in Taking

Evidence.
Article 4.23. Statements of Claim and
Defense. The arbitral tribunal or a party with the approval
of the arbitral tribunal may request from a court
(a) Within the period of time agreed by the of the Philippines assistance in taking evidence.
parties or determined by the arbitral tribunal, The court may execute the request within its
the claimant shall state the facts supporting competence and according to its rules on taking
his/her/its claim, the points at issue and the evidence.
relief or remedy sought, and the responden.t
shall state his/her/its defense in respect of The arbitral tribunal shall have the power to
these particulars, unless the parties have require any person to attend a hearing as a
otherwise agreed as to the required witness. The arbitral tribunal shall have the
elements of such statements. The parties power to subpoena witnesses and documents
may submit with their statements, all when the relevancy of the testimony and the
documents they consider to be relevant or materiality thereof has been demonstrated to it.
may add a reference to the documents or The arbitral tribunal may also require the
other evidence they will submit. retirement of any witness during the testimony of
(b) Unless otherwise agreed by the parties, any other witness.
either party may amend or supplement
his/her claim or defense during the course of A party may bring a petition under this Section
the arbitral proceedings, unless the arbitral before the court in accordance with the Rules of
tribunal considers it inappropriate to allow Court or the Special ADR Rules.
such amendment having regard to the delay
in making it. RULES APPLICABLE TO THE SUBSTANCE
OF THE DISPUTE
Article 4.24. Hearing and Written
Proceedings. Article 4.28. Rules Applicable to the
Substance of Dispute.
(a) Subject to any contrary agreement by the
parties, the arbitral tribunal shall decide (a) The arbitral tribunal shall decide the dispute
whether to hold oral hearings for the in accordance with such rules of law as are
presentation of evidence or for oral chosen by the parties as applicable to the
argument, or whether the proceedings shall substance of the dispute. Any designation of
be conducted on the basis of documents the law or legal system of a given state shall
and other materials. However, unless the be construed, unless otherwise expressed,
parties have agreed that no hearings shall as directly referring to the substantive law of
be held, the arbitral tribunal shall hold such that state and not to its conflict of laws rules.
hearings at an appropriate stage of the (b) Failing any designation by the parties, the
proceedings, if so requested by a party. arbitral tribunal shall apply the law
(b) The parties shall be given sufficient advance determined by the conflict of laws rules,
notice of any hearing and of any meeting of which it considers applicable.
the arbitral tribunal for the purposes of (c) The arbitral tribunal shall decide ex aequo et
inspection of goods, other property or bono or as amiable compositeur only if the
documents. parties have expressly authorized it to do so.
(c) All statements, documents or other (d) In all cases, the arbitral tribunal shall decide

in accordance with the terms of the contract Arbitral Award).

and shall take into account the usages of the (d) Notwithstanding the foregoing, the arbitral
trade applicable to the transaction. tribunal may, for special reasons, reserve in
the final award or order, a hearing to
AWARD AND TERMINATION quantify costs and determine which party
shall bear the costs or the division thereof as
Article 4.31. Form and Contents of Award. may be determined to be equitable. Pending
determination of this issue, the award shall
(a) The award shall be made in writing and shall not be deemed final for purposes of appeal,
be signed by the arbitrator or arbitrators. In vacation, correction, or any post-award
arbitral proceedings with more than one proceedings.
arbitrator, the signatures of the majority of all
members of the arbitral tribunal shall suffice, RECOGNITION AND ENFORCEMENT OF
provided that the reason for any omitted AWARDS
signature is stated.
(b) The award shall state the reasons upon RULE 6 - Recognition and Enforcement of
which it is based, unless the parties have Awards
agreed that no reasons are to be given or
the award is an award on agreed terms Article 4.35. Recognition and Enforcement.
under paragraph (a) of Article 4.20 (Place of
Arbitration). (a) A foreign arbitral award shall be recognized
(c) The award shall state its date and the place as binding and, upon petition in writing to the
of arbitration as determined in accordance Regional Trial Court, shall be enforced
with paragraph (a) of this Article. The award subject to the provisions of this Article and of
shall be deemed to have been made at that Article 4.36 (Grounds for Refusing
place. Recognition or Enforcement).
(d) After the award is made, a copy signed by (b) The petition for recognition and enforcement
the arbitrators in accordance with paragraph of such arbitral awards shall be filed with the
(a) of this Article shall be delivered to each Regional Trial Court in accordance with the
party. Special ADR Rules. (i) Convention Award -
The New York Convention shall govern the
Article 4.32. Termination of Proceedings. recognition and enforcement of arbitral
awards covered by said Convention. The
(a) The arbitral proceedings are terminated by petitioner shall establish that the country in
the final award or by an order of the arbitral which the foreign arbitration award was
tribunal in accordance with paragraph (b) of made is a party to the New York
this Article. Convention. (ii) Non-Convention Award -
(b) The arbitral tribunal shall issue an order for The recognition and enforcement of foreign
the termination of the arbitral proceedings arbitral awards not covered by the New York
when: (i) The claimant withdraws his/her/its Convention shall be done in accordance
claim, unless the respondent objects thereto with procedural rules to be promulgated by
and the arbitral tribunal recognized a the Supreme Court. The court may, on
legitimate interest on his/her/its part in grounds of comity and reciprocity, recognize
obtaining a final settlement of the dispute; and enforce a non-convention award as a
(ii) The parties agree on the termination of convention award.
the proceedings; 28 (iii) The arbitral tribunal (c) The party relying on an award or applying
finds that the continuation of the for its enforcement shall file with the
proceedings has for any other reason Regional Trial Court the original or duly
become unnecessary or impossible. authenticated copy of the award and the
(c) The mandate of the arbitral tribunal ends original arbitration agreement or a duly
with the termination of the arbitral authenticated copy thereof. If the award or
proceedings, subject to the provisions of agreement is not made in an official
Articles 4.33 (Correction and Interpretation language of the Philippines, the party shall
of Award, Additional Award) and paragraph supply a duly certified translation thereof into
(d) of Article 4.34 (Application for Setting such language.
Aside an Exclusive Recourse against (d) A foreign arbitral award when confirmed by

a court of a foreign country, shall be

recognized and enforced as a foreign
arbitral award and not as a judgment of a
foreign court.
(e) A foreign arbitral award when confirmed by
the Regional Trial Court, shall be enforced in
the same manner as final and executory
decisions of courts of law of the Philippines.
(f) If the Regional Trial Court has recognized
the arbitral award but an application for
(rejection and/or) suspension of
enforcement of that award is subsequently
made, the Regional Trial Court may, if it
considers the application to be proper,
vacate or suspend the decision to enforce
that award and may also, on the application
of the party claiming recognition or
enforcement of that award, order the other
party seeking rejection or suspension to
provide appropriate security.
APPEAL
Article 4.27. Court Assistance in Taking

Evidence.
The arbitral tribunal or a party with the approval

of the arbitral tribunal may request from a court
of the Philippines assistance in taking evidence.
The court may execute the request within its
competence and according to its rules on taking
evidence.
The arbitral tribunal shall have the power to

require any person to attend a hearing as a
witness. The arbitral tribunal shall have the
power to subpoena witnesses and documents
when the relevancy of the testimony and the
materiality thereof has been demonstrated to it.
The arbitral tribunal may also require the
retirement of any witness during the testimony of
any other witness.
A party may bring a petition under this Section

before the court in accordance with the Rules of
Court or the Special ADR Rules.

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ALTERNATIVE DISPUTE RESOLUTION | Atty.

VINCENT CESISTA | Modular Lecture Notes| EH 307

CONCEPT OF ARBITRATION industry, a Construction Industry Arbitration

(a) "Alternative Dispute Resolution In practiced nowadays, absent an agreement of

FAMindaña & ABOrbiso’s Notes 2021 1

FAMindaña & ABOrbiso’s Notes 2021 2

contract and the approval of such work by a

Moreover, it has been held that, if the

FAMindaña & ABOrbiso’s Notes 2021 3

Industries and private respondent

FACTS: A motion for reconsideration of said resolution

FAMindaña & ABOrbiso’s Notes 2021 4

resolution. vacating the award under Sec. 24 (d) of the

FAMindaña & ABOrbiso’s Notes 2021 5

UNIWIDE SALES REALTY AND

ART. 2040. If after a litigation has been

FAMindaña & ABOrbiso’s Notes 2021 6

ARBITRAL TRIBUNAL promulgated a

Project 2 – Edsa Central: RULING

[Uniwide] is absolved of any liability As a rule, findings of fact of administrative

FAMindaña & ABOrbiso’s Notes 2021 7

Other recognized exceptions are as follows: Court, citing the provisions

FAMindaña & ABOrbiso’s Notes 2021 8

relating to Project 2 in the amount

As an arbitration body, the CIAC can only

Project 2: "as-built" plans, overpricing, FACTS

FAMindaña & ABOrbiso’s Notes 2021 9

acknowledged as the owner of four mining d. Non-payment of the royalties thereon as

FAMindaña & ABOrbiso’s Notes 2021 10

FAMindaña & ABOrbiso’s Notes 2021 11

FAMindaña & ABOrbiso’s Notes 2021 12

in a matter which is the subject matter of x xxx

FAMindaña & ABOrbiso’s Notes 2021 13

The recognition and enforcement of Sec. 46 of RA 9285 provides for an appeal

FAMindaña & ABOrbiso’s Notes 2021 14

FAMindaña & ABOrbiso’s Notes 2021 15

RULING In Gonzales v. Climax Mining Ltd., we held

FAMindaña & ABOrbiso’s Notes 2021 16

Arbitration clause not contrary to public Commission on International Trade Law

FAMindaña & ABOrbiso’s Notes 2021 17

performed. promulgated by the Supreme Court. The

FAMindaña & ABOrbiso’s Notes 2021 18

FAMindaña & ABOrbiso’s Notes 2021 19

With our disquisition above, petitioner is correct Petitioner's position is untenable.

FAMindaña & ABOrbiso’s Notes 2021 20

is ineluctably within the management discretion

Thirdly, and of greater import is the reason that

Fourthly, and corollarily, while the KCAB can

Fifth, KOGIES is not unjustly prejudiced as it has

Finally, while PGSMC may have been granted

FAMindaña & ABOrbiso’s Notes 2021 21

MODULE 2 gives to States in preparing new

FAMindaña & ABOrbiso’s Notes 2021 22

The ADR act provides that International For this purpose:

WHAT IS AN INTERNATIONAL COMMERCIAL If a party has 2 or more places of business, one

FAMindaña & ABOrbiso’s Notes 2021 23

would be the decisive place for the purpose of PLACE OF ARBITRATION

FAMindaña & ABOrbiso’s Notes 2021 24

among its members, for hearing its witnesses, CHAPTER 4 – INTERNATIONAL

(a) This Chapter applies to ICA, subject to

FAMindaña & ABOrbiso’s Notes 2021 25

way refers to an arrangement of the

FAMindaña & ABOrbiso’s Notes 2021 26